What does the foreign exchange risk reserve ratio mean?
The foreign exchange risk reserve ratio requires banks to deposit 20% of the nominal principal of a customer's forward foreign exchange purchase business in the central bank for one year without paying interest, which means that as long as a bank accepts a customer's forward foreign exchange purchase business, a dollar will be frozen by the central bank, increasing the bank's capital cost. This transaction cost will be converted into the quotation of forward foreign exchange purchase business, which will increase the cost of customers' forward foreign exchange purchase in disguise.
The foreign exchange risk reserve ratio requires that foreign exchange risk reserves be collected from financial institutions engaged in the forward sale of foreign exchange on behalf of customers, and the reserve ratio is tentatively set at 20%. It is an effective means used by the government to crack down on RMB bears and stabilize the exchange rate.
What is the impact of raising the foreign exchange risk reserve ratio?
The increase of foreign exchange risk reserve ratio will have a direct impact on the timing of long-term foreign exchange purchase, and the cost of long-term foreign exchange purchase will also increase. The impact on the spot exchange rate of RMB cannot be seen immediately. The People's Bank of China obviously has a deeper thinking, that is, at what level is the current RMB exchange rate suitable. Although exchange rate changes can't completely affect a country's import and export trade, they will still have some influence. It is also necessary to adjust the proportion of foreign exchange reserves to maintain the stability of the exchange rate.